Family Offices Chasing Wealthy’s $46 Trillion in Assets

Michael Cole says his offices, adorned here with a Warhol print, are designed to appeal to 'the new billionaire.' Photographer: Jason Madara/Bloomberg Markets; Image of Cowboys and Indians: John Wayne: Copyright 2013 The Andy Warhol Foundation for the Visual Arts, Inc./Artists Rights Society (ARS), New York

Aug. 6 (Bloomberg) -- Karen McNeill, Ph.D., used to teach
history at the University of California, Berkeley. In June, she
took a job as head of family history with Ascent Private Capital
Management, a new unit of U.S. Bancorp that manages the affairs
of ultra-wealthy families.

McNeill’s job is to help Ascent’s clients discover their
pasts, skeletons and all, and gain perspective on their Gatsby-sized fortunes. The job is the creation of Michael Cole,
Ascent’s president, who’s determined to make Minneapolis-based
U.S. Bancorp, the fifth-largest U.S. lender, a contender in the
market for high-end financial services.

Cole, 53, and McNeill are based in San Francisco, where
Ascent has one of its five offices, all decorated in white, and
all inspired by Apple Inc. stores and Virgin America Inc.
aircraft cabins, Bloomberg Markets magazine will report in its
September issue.

“They’re designed to appeal to the new billionaire,” Cole
says after a tour of the firm’s 21st-floor suite overlooking San
Francisco Bay.

Ascent was the second-fastest-growing money manager in the
world catering to wealthy families in 2012. It boosted assets
under advisement 96 percent, excluding transfers from within the
bank, to $4.4 billion, according to Bloomberg Markets’ annual
ranking of family offices.

$50 Million

The firm is pursuing people who have made new fortunes.
About 60 percent of Ascent’s clients are wealth creators and
their families, Cole says -- though he also has heirs to musty
old fortunes.

To be an Ascent client, you must have $50 million. Unlike
other wealth managers, Cole will count the value of your closely
held business in that figure.

“I want to talk to the family business owner five years
before he’s even thought about going public,” Cole says. “I want
to get to him before Goldman Sachs does. If I can build the
relationship with him then, then I’m already going to own that
guy when it’s the time.”

Ascent’s San Francisco office -- the others are in
Cincinnati, Denver, Minneapolis and Seattle -- is in a region
that hatches tech millionaires and billionaires like cicadas
after each initial public offering. Unlike the hyper-wealthy
from other industries, executives at companies such as Facebook
Inc. and LinkedIn Corp. tend to be young, busy and nowhere near
ready to talk about retirement and trust accounts, Cole says.

Athlete/Entrepreneur

“When you’re dealing with a tech billionaire, it’s almost
like dealing with a pro athlete,” he says. In mid-July, Cole was
helping one figure out whether to buy or lease a private jet.

The fastest-growing family office made the Bloomberg
Markets ranking by wooing rich Latin Americans. CV Advisors LLC,
based in Miami, is run by Elliot Dornbusch, a one-time builder
of high-rise residential and office towers in Venezuela, and his
partners, Alex Mann and Matthew Storm.

Dornbusch has played charity poker with the likes of hedge-fund manager James Simons, founder of Renaissance Technologies
LLC. CV’s assets grew 100 percent in 2012 to $2.5 billion. The
new money came from just six families, Dornbusch says, all
referrals.

“We spend a lot of time with the families before they
become clients to make sure they become the right clients,”
Dornbusch says.

Competition for the new rich is tough. Investment firms
such as Iconiq Capital LLC and Seven Post Private Investment
Office LP, both based in San Francisco, cater to the same
clients as Ascent.

Facebook Fortunes

Iconiq, founded by a group that included former Goldman
Sachs Group Inc. executive Divesh Makan, manages money for early
Facebook employees, according to two people familiar with the
firm. Its 31-member staff oversees $5 billion for 200 clients,
according to a filing with the U.S. Securities and Exchange
Commission. Seven Post, also run by Goldman alumni, manages $3.2
billion, according to the SEC. Iconiq spokesman Paul Kranhold at
Sard Verbinnen & Co. declined to comment, as did Eldridge Gray,
a founder of Seven Post.

One firm has a big jump on the competition in Silicon
Valley. CTC Consulting/Harris myCFO, based in Chicago with
offices in Palo Alto, has been courting tech billionaires since
1999, when Netscape Communications Corp. co-founder Jim Clark
started myCFO as an online service. In 2002, Clark sold the firm
to Montreal-based BMO Financial Group, which merged it into its
Harris Private Bank.

CTC Consulting/Harris myCFO, the firm’s new name as of
July, retains almost all the wealthy entrepreneurs it originally
recruited, President John Benevides says, and is adding more.
Ranked No. 7 in the Bloomberg Markets list, the firm grew assets
6 percent last year.

“There is something about being in and of the Valley,”
Benevides says.

Millionaires Multiply

Family offices around the globe are booming because they’re
on the right side of the supply-demand equation. The number of
people in the world with at least $1 million of investable
assets -- excluding their primary residence and collectibles --
rose 9.2 percent to a record 12 million in 2012, according to an
annual report by Capgemini and RBC Wealth Management. Assets
held by the rich grew 10 percent to $46.2 trillion, driven by
gains among people with $30 million or more. The number of
millionaires in North America rose 11.5 percent to 3.73 million,
making it the region with the most growth.

Mark Haranzo, a lawyer at Withers Bergman LLP in New York,
who handles legal issues for wealthy families, sees the rich
continuing to get richer. He says he took his son to a car show
in Connecticut recently.

“What was more amazing than the cars in the show were the
cars in the parking lot,” he says. Among them: a Ferrari 250, a
model the company stopped making in the 1960s. One sold for
$16.4 million in 2012.

Big vs. Boutique

The two fastest-growing firms -- a big bank and an
independent -- exemplify the tussle that’s going on as nonbank
wealth managers try to wrest more money from the banks. The
independent firms argue that banks just want to sell financial
products and earn fees, not preserve a clan’s wealth with shrewd
tax strategy, investments and education.

“We want to be all things to some people,” Paul Tramontano,
founder of Constellation Wealth Advisors LLC, said at a family
office conference at the Harvard Club of New York City in June.
New York-based Constellation tied Ascent and Waltham,
Massachusetts-based Ballentine Partners LLC for 32nd in the
ranking, with $4.4 billion.

Institutions like U.S. Bancorp are trying to offer all the
services of a big bank, combined with the personalized touch of
a small firm. Wells Fargo & Co. last year started Abbot Downing
(No. 8 in the list, with $32.2 billion), a luxe wealth
management unit with a posh-sounding name.

Like Ascent, it has a group of historians on staff. One
specializes in genetic and medical histories, which can reveal
vulnerabilities like the one that prompted actor Angelina Jolie
to have a double mastectomy this year.

“The banks try to disguise themselves as smaller
boutiques,” says Haranzo, the New York lawyer. “You can’t blame
them. It adds a certain cachet.” The challenge for family
offices is offering the services wealthy families want and
making money on them, he says.

Fee Fights

Money management works as a business because there are
economies of scale. Managing $1 billion in a stock portfolio
doesn’t take 10 times as many people as managing $100 million.
In the family office business, adding clients means adding
people.

“Your clients are very demanding, and they beat you up on
fees,” Haranzo says. One of his called him on a recent Sunday
morning looking for an attorney to handle a drunken-driving
charge for his kid, he says.

Cole has his own solution to the profit problem. He
requires clients to pay Ascent at least $200,000 a year. Some
don’t keep any money at Ascent and instead use its softer
services. Dr. Kristen Armstrong, one of the staff psychologists,
in June led a seminar for a group of siblings who had recently
sold a business and had to figure out how to handle the sudden
wealth. Armstrong used Real Colors, a gamelike activity that’s
designed to reveal people’s temperaments.

Heli-Skier

Cole, a Mel Gibson look-alike who helicopters into the
Canadian Rockies to ski deep powder, himself comes from wealth.
His father was an entrepreneur who became the head of a textile
company in Connecticut. Cole grew up in the affluent enclave of
Westport and earned a bachelor’s degree from Emory University in
Atlanta. Later, he ran the trust company at Merrill Lynch & Co.
He joined Wells Fargo in 1998 and worked his way up to head of
the family wealth unit.

Cole left Wells Fargo in April 2010 after a disagreement
over strategy. And he hit the streets without lining up another
job.

“I had no idea what I was going to do,” he says.

So the father of twins, who are now 13 years old, spent six
weeks in Brazil, where he fished for piranhas and ogled
waterfalls. When he returned, he heard that U.S. Bancorp was
looking to enhance wealth management. Cole had a vision, and he
had to sell it to CEO Richard Davis.

“I said, if we’re going to do this, we have to do it
right,” Cole explains. “We can’t nickel-and-dime it.”

Boring, Cubed

Davis isn’t one for glitz. In conference calls, he
routinely describes U.S. Bancorp and its performance as
“boring.” Once, last year, he tripled down, calling it “boring,
boring, boring.”

He backed Cole’s idea, however, because he could afford it.
U.S. Bancorp sailed through the financial crisis, having shunned
the subprime mortgages and other dicey assets that crippled
competitors. Its shares returned 53.1 percent in the two years
ended on July 8 compared with 27.8 percent for the Standard &
Poor’s 500 Index.

Since Cole arrived, Ascent has hired 80 people and built
five offices. The one in San Francisco is hung with original
works of art by Andy Warhol, Jasper Johns and Roy Lichtenstein,
all on loan. There’s a room where kids can hang out while
parents talk to Ascent staff. It has a couch and a white bean-bag chair -- to match the overall décor -- an Xbox video game
console and board games that teach wealth preservation.

The offices of CV Advisors, by contrast, have none of that.
They’re all dark veneer and carpet, inside an unremarkable
building north of downtown Miami.

Fleeing Chavez

Dornbusch, 39, was born in Colombia and raised in
Venezuela, where his father was a builder. After earning a
Master of Business Administration at Babson College in
Wellesley, Massachusetts, in 1998, Dornbusch went back to
Venezuela and started a real estate development company. He sold
his buildings and moved to Miami in 2002, after concluding that
then-Venezuelan President Hugo Chavez was bad for business. He
started a family office to manage his own money.

Dornbusch says his wealthy friends were impressed when he
penned an article for “South Florida CEO” magazine in October
2007 saying that trouble in the subprime-mortgage market would
lead to a full-blown credit crisis. Soon, they were wiring him
money to manage.

“We were able to protect a lot of capital,” he says. “Our
basic assumption is that we distrust everybody.”

The two firms’ aim is the same, which is helping wealthy
families avoid the fate that befalls most of them: having their
children or grandchildren blow the inheritance.

Dissipating Fortunes

James “Jay” Hughes, a lawyer and author of several books on
wealth management, says 85 percent of rich clans have lost their
money by the third generation. In 90 percent of cases, he says,
fortunes disappear because families don’t communicate and can’t
make decisions. Hughes, 70, is such a fan of Cole’s investment
in historians and psychologists that he joined an Ascent
advisory board.

“It’s a noble experiment,” he says.

Ascent is slated to open its sixth -- and last, for now --
office in San Diego early next year. Cole’s hope is that a new
crowd of multimillionaires will come knocking at its door.

How We Crunched the Numbers

Our ranking of family offices was based on data compiled by
Bloomberg from information self-reported by multifamily offices.
The list was assembled through research by the Bloomberg
Rankings team via a survey of more than 1,000 firms worldwide,
using a database of contacts obtained from Portland, Oregon-based Family Offices Group. We received responses from 118
firms.

Single-family offices were excluded. Family offices that
are part of private banks were included if the bank has a unit
that offers direct and comprehensive investment and
noninvestment services to high-net-worth families.

Figures for assets under advisement included only assets
managed by the family-office unit of the bank. For non-bank
family offices, AUA includes wealth directly managed by the
offices and funds outsourced to money-management firms.

Money managed for pension funds was excluded; money managed
for private foundations was included. Insurance policies and
trusts on which advice is provided were included.

The ranked firms provide both investment and noninvestment
services to multigenerational families. Noninvestment services
may include family meetings, financial education, art
consulting, estate planning, family governance, foundation
management, business consulting and concierge services such as
property management, private travel arrangement and shopping
assistance.